Markets Becalmed

Overview:

The US 10-year yield is hovering around 1.18% in Europe, while the on-the-run JGB benchmark yield is below zero for the first time this year. Greek and Australia's 10-year bond yields are at new six-month lows. The softer yields saw the dollar to two-month lows against the yen, while the Swiss franc rose to the highest level since last November against the euro.  Equities appear to like the lower yields. 

The S&P 500 set a closing record high yesterday, and, with the help of a more constructive tone from Beijing, all the major markets, but Tokyo, traded higher today. The Shanghai Composite pushed back above the 200-day moving average. The Dow Jones Stoxx 600 is at new record highs today, though US futures are softer. The Antipodeans are the strongest of the major currencies, while the Scandis, euro, Swiss franc, and Japanese yen posting minor losses.

Emerging market currencies are mixed. South Korea and Taiwan lead the advancers, while the Turkish lira and Philippine peso lead the decliners.  The net effect is that the JP Morgan Emerging Market Currency Index is slightly lower. 

Gold is trading quietly and remains within the range set on Monday (~$1805-$1820). September WTI is little changed after recovering from $69.20 to settle above $70.50 yesterday.  API showed another drawdown of US stocks, and the DOE is expected to report an almost 3 mln barrel. It has shown one weekly build since mid-May.

Copper is softer for the fourth consecutive session. The CRB Index fell by 0.2% yesterday after falling by more than 1% in each of the previous two sessions.  

Asia Pacific

China's Caixin service PMI was stronger than expected, rising to 54.9 from 50.3. This lift the composite to 53.1 from 50.6. The market's focus is elsewhere. First, China is experiencing its broadest outbreak of the virus, and lockdowns are likely to spur downward revisions to growth.  Nearly half of China's 32 provinces are reporting cases, and travel is being discouraged.  The economic impact is reinforcing expectations for additional policy support. Second, after appearing to be like the proverbial bull in a china shop, Beijing appears to have softened rhetoric about the video game sector without backtracking on the underlying criticism.  

Japan's service PMI was revised to 47.4 from the preliminary estimate of 46.4 but remains below the 50 boom/bust level and is weaker than the 48.0 reading in June. This puts the composite at 48.8, not 47.7, but slightly lower than June's 48.9.  Worries about the virus and the decline in US and European yields helped drag the 10-year JGB yield below zero for the first time this year. However, activity in the benchmark is uneven and low, and yesterday, it did not trade, according to reports. 

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Read more by Marc on his site Marc to Market.

Disclaimer: Opinions expressed are solely of the author’s, based on current ...

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